Apple Killed the Netbook

And we’re all better off for the demise of the $400 future of computing.

Netbooks are dead. Good riddance! Just a few years ago, these small, underpowered, ultracheap laptops were considered the future of the computer industry. In 2008 and 2009, recession-strapped consumers around the world began snapping up netbooks in droves. They became the fastest-growing segment of the PC market, and some wild-eyed analysts were suggesting that netbook sales would soon eclipse those of desktops and regular laptops combined. That didn’t happen. Over the past couple years the netbook market crashed. Now, as Charles Arthur reports in the Guardian, most major PC manufacturers have stopped making these tiny machines. The last holdouts were the Taiwanese firms Acer and Asus. Both say they won’t build any netbooks in 2013.

What killed the netbook? Arthur’s smart piece offers three plausible suspects: First, PC makers began making better, cheaper laptops, which made for stronger competition against netbooks. Second, PC makers discovered that netbooks were a terrible business—after paying Microsoft a licensing fee for Windows, manufacturers weren’t making any money on very cheap computers. And finally, there was the rise of tablets; once machines like the iPad came along, people lost interest in $400 netbooks.

These are all plausible theories, but I think Arthur is a bit too reluctant to tie the whole story together and issue a blistering indictment against the netbook’s assassin. If you study the PC industry over the past five years, you find only one company that had the means, motive, and opportunity. Apple killed the netbook, more or less single-handedly, and we should all be grateful for it.

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Netbooks were terrible machines, a technological blight that threatened to become the future of computing. They had awful, nearly unusable keyboards, very slow processors, and they ran versions of Windows or Linux that were a trudge to use on tiny screens. Yet despite their awfulness, they were embraced by the world’s largest tech firms—Intel, Microsoft, HP, Dell, and Lenovo were all gaga for them.

Apple alone stood against the tide of netbooks. Apple’s brilliant insight was that despite netbooks’ popularity, nobody really wanted a netbook per se. Instead, Apple realized that people who were buying netbooks were looking for one of two things—they wanted full-fledged laptops that were very portable, or they wanted cheap machines that allowed them to easily surf the Web, use email and do other light computing tasks. Rather than building a single netbook that fit both these audiences poorly, Apple built two machines that were, each in its own way, much better than any netbook ever sold.

In 2008, Apple launched the expensive but very portable MacBook Air, and then in 2010, it put out the cheap but capable iPad. Neither was a direct substitute for the netbook. But consumers immediately recognized their utility—and quickly abandoned netbooks. The iPad and the Air became the blueprints for the rest of the industry, with every other PC manufacturer now making similarly thin laptops and touchscreen tablets. Thus, thanks to Apple—and Apple alone—we were all saved from the rise of terrible tiny machines.

It’s difficult, now, to appreciate how courageous Apple’s refusal to join the netbook parade once was. In 2008, its cheapest laptop sold for more than $1,000. This was crazy expensive in the midst of a global recession, and investors and analysts were hounding the company to lower its prices. Apple’s stock price sank to less than $100.

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But Apple had two reasons for holding steady against netbooks. One was noble: Shrinking a laptop to the size of netbooks—which typically had 7- or 9-inch screens and very slow Intel Atom processors—made for an inherently inferior computing experience. At that size, pointing devices and keyboards became very annoying to use, and operating systems designed for systems with more power worked like molasses. In other words, netbooks sucked, and Apple didn’t want to make computers that sucked. As Steve Jobs told investors in 2008, “We don't know how to make a $500 computer that's not a piece of junk. Our DNA will not let us do that.”

The second reason Apple didn’t make a netbook was that it couldn’t make a netbook. The principal difference between Apple and most other tech manufacturers is that Apple prizes profits over market share. Sure, Apple, like all companies, wants to sell a lot of widgets—but given a choice between making $10 billion by capturing 10 percent of the market or $1 billion by capturing 90 percent of the market, Apple will always choose money over sales. (You’d think this was obvious; don’t all companies want to make money? Nope: Apple sells fewer PCs than most other companies, but makes much more money doing so than all of its rivals.)

That’s why Apple couldn’t make a netbook. Netbooks were a market-share play—at $300 to $400 each, PC manufacturers were making very little on each one sold, so the only way to succeed was to get a huge slice of the market. Apple had no interest in playing that game; why spend time and effort selling something you wouldn’t make any money on?

It’s worth noting that Apple wasn’t the only PC maker that was worried about netbooks’ low margins. Many other PC manufacturers recognized that netbooks would ruin them, too. In 2008, the New York Times published a piece citing computer makers’ rising anxiety about netbooks. One industry analyst told the paper, “When I talk to PC vendors, the No. 1 question I get is, how do I compete with these netbooks when what we really want to do is sell PCs that cost a lot more money?”

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An executive at Fujitsu, one of the world’s largest PC companies, told the Times that the firm wouldn’t be making a netbook because it couldn’t see a way to make money from them: “We’re sitting on the sidelines not because we’re lazy. We’re sitting on the sidelines because even if this category takes off, and we get our piece of the pie, it doesn’t add up,” Paul Moore, senior director of mobile product management for Fujitsu, told the Times. “It’s a product that essentially has no margin.”

But even though there was no money in them, most PC makers joined the netbook parade. That Times article was published in July 2008; in October, Fujitsu launched its first netbook. Soon everyone else except Apple had one.

I’m sure I’ll hear from a number of readers who’ll claim to have loved their netbooks. You’ll say that while there may have been terrible netbooks on the market, your particular one was just right for you. And you’ll further argue that however terrible netbooks were, they were certainly better than the iPad and other tablets, on which you can’t do any “real work.” (I know you!)

But I don’t believe you. Most research suggests that while people were entranced with the idea of netbooks, they hated them in reality. A 2009 survey by the market research firm NPD showed that most people bought netbooks thinking they would work as a substitute to a standard laptop—and they became very disappointed when they realized that netbooks weren’t powerful enough to be used that way. In other words, netbooks were marketed as being for “real work,” but they turned out to be unsuited for most computing tasks.

The iPad, meanwhile, never had any pretensions of functioning as a replacement for a laptop. It was always sold as something different: a truly mobile gadget meant for non-office computing. Everything about it, from its processor to its battery to its operating system, was designed specifically for delivering a better mobile experience. Unlike a netbook, the iPad turns on instantly, it has a 10-hour battery life, and it can find your location on a map. Unlike a netbook, it has an App Store that overflows with software designed for its screen.

True, the iPad, unlike the netbook, doesn’t come with a keyboard or a pointing device. But you can buy a keyboard for it—and if you want a pointing device and Windows, you buy Microsoft’s Surface or one of the many “hybrid” laptop/tablet Windows 8 machines now hitting the market. Or, if you want a “real” computer, you can buy a MacBook Air (which now goes for $1,000) or any of its Windows “ultrabook” clones.

See what I’m saying? Even if you don’t use the iPad or the Air and have no interest in ever buying an Apple product, pretty much every mobile computer you can buy today was inspired by the two devices that Apple ginned up to fight netbooks. In netbooks’ demise, Apple emerged victorious—but so did the rest of the PC industry, and so did we users.